Introduction
Freelancers, gig workers, and independent contractors enjoy flexibility and independence—but with that freedom comes responsibility. Unlike traditional employees, no employer is withholding taxes from your paycheck. That means you’re responsible for paying quarterly estimated taxes directly to the IRS. If you don’t, you could face IRS penalties for underpayment of estimated taxes.
Here’s what every freelancer needs to know to stay compliant and avoid surprises at tax time.
Why Freelancers Must Pay Estimated Taxes
The U.S. tax system is “pay-as-you-go.” Employees have taxes withheld from each paycheck, but freelancers must make their own payments throughout the year. You may need to pay estimated taxes if:
- You expect to owe at least $1,000 in taxes when you file.
- You have income from self-employment, side gigs, or 1099 work.
- You don’t have enough tax withheld from other income sources.
Failing to pay can result in IRS underpayment penalties and interest.
When Estimated Taxes Are Due
The IRS requires four payments each year:
- April 15 – for income earned January–March
- June 15 – for income earned April–May
- September 15 – for income earned June–August
- January 15 (following year) – for income earned September–December
Missing these deadlines can trigger penalties, even if you pay in full at tax time.
How to Calculate Estimated Taxes
There are two main approaches:
- Safe Harbor Method: Pay 100% of last year’s tax liability (110% if your income was over $150,000). This ensures you avoid penalties.
- Current Year Method: Estimate your actual income and deductions for the year and pay 90% of that amount.
Freelancers often use IRS Form 1040-ES to calculate and submit payments.
Deductible Expenses for Freelancers
Reducing taxable income lowers your estimated tax payments. Common deductions include:
- Home office expenses
- Internet and phone bills
- Business supplies and software
- Mileage or vehicle expenses
- Health insurance premiums (if self-employed)
Tracking expenses throughout the year helps you avoid overpaying.
What Happens If You Don’t Pay Estimated Taxes
The IRS can impose:
- Underpayment penalties for each missed deadline.
- Interest charges on unpaid balances.
- Increased scrutiny if you consistently underpay.
How a Tax Professional Can Help Freelancers
A tax attorney for freelancers can:
- Calculate accurate quarterly payments.
- Help you maximize deductions.
- Set up systems to track income and expenses.
- Negotiate with the IRS if you fall behind.
Conclusion
Freelancers and gig workers can avoid IRS trouble by staying on top of quarterly estimated taxes. Paying on time, tracking expenses, and planning ahead will save you from penalties and stress.
If you’re a freelancer struggling with estimated taxes or IRS penalties, contact our office today. We’ll help you set up a system that works and keep you compliant year-round.
Disclaimer:
This post does not constitute legal advice and does not create an attorney-client relationship, it is merely a general discussion of points of the law and may not be complete or up to date. Please contact our office for a consultation to discuss how tax laws may be relevant to your specific situation.